Contracting in the Digital Age – how parking a car in the 1970s informs online contracts today

Today, most businesses have an online presence for the sale of their goods and/or services and will have (or should have) some sort of “Terms and Conditions” of purchase on their website. However, is having Terms and Conditions stashed in the depths of a website enough to properly inform your customer of the terms under which they are making a purchase? No. It is important for business operators to take steps to ensure the customer has the opportunity to read and accept the terms of purchase before they take the final step of clicking the “pay now” button. Otherwise, businesses take the risk that their bespoke terms such as warranty periods, cancellation rights and/or disclaimers are not included in the contract actually formed with their customer.

Here we revisit the powerful and important basics for any business operator utilising an online sales platform.

When is a contract formed?

In Australia there are several essential elements that must be satisfied for a binding contract to be formed:

• there is an offer of terms that are reasonably certain or capable of being ascertained and there is acceptance of those terms;
• consideration passes between the parties (this can be through the payment of money, or mutual promises between the parties including where a person confers a benefit or incurs a detriment);
• each party has the legal capacity to enter into the legal relationship;
• there is an intention by both parties to enter into a legal relationship (where there is a commercial arrangement there is a presumed intention to enter into a legal relationship with legal consequences); and
• sometimes there are certain formalities depending on the type of agreement being reached, such as the agreement being in writing for certain transactions (eg transactions dealing with land).

Focusing on the first element, what happens if your website only says: “Click here and start your 30 day trial. After 30 days, we’ll debit your card with $10 per month for a 12 month contract term”.

Terms of offer and acceptance

The law requires that your offer contains all the terms and those terms must be communicated before the contract is accepted. There can be no intention to be bound by terms that are communicated after the contract is formed.

This was made clear in Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163. In this case, Thornton parked his car in an automatic car park. Upon entering the car park, he bought a ticket from the automatic ticket machine. Glancing only at the time on the ticket, Thornton did not read the small print in the bottom left-hand corner which stated “issued subject to conditions displayed on the premises”. The conditions, prominently displayed inside the parking area, excluded the car park operator’s liability from any personal injury sustained by a customer or any damage to their vehicle on the premises. These displays did not appear outside the car park or at the entrance to the boom gate.

When Thornton returned to collect his car, an accident occurred which resulted in both personal injury and damage to his car. When Thornton sued for negligence, the car park operator attempted to rely on the disclaimer printed on the ticket. The Court found that the disclaimer was not a term of the contract because the car park operator had not done what was reasonably sufficient to bring those terms to Thornton’s attention before he had entered the car park and therefore before the contract was formed.

This case highlighted the relevant point of contract law: that reasonable notice must be given of the terms of the proposed offer at the time or before the contract is formed.  This is also why car park operators generally give you a grace period to exit the car park after entry without payment (in case when you get to the boom gate you don’t agree with the terms and wish to exit because you can’t just reverse out of the entryway).

So, whenever you wish to sell online you need to make sure that all of your terms are brought to the consumer’s attention before they can finalise their purchase.

Use of Click-Wrap

Before making an online purchase, businesses typically require consumers to agree to their terms and conditions using a ‘tick box’ or what is also called a “click wrap” agreement. These types of agreements speed track the consumers’ agreement, attaching detailed conditions to the sale contract; the consumer is left with the “enjoyable bit”, skipping right to the choice and purchasing phase.

Is it enough that the consumer just ticks a box stating that they agree to the terms and conditions when the terms and conditions aren’t readily accessible? Possibly not.

If the terms of the contract are called into question later, you want clear evidence that you brought the terms to the consumer’s attention. Two ways to establish this evidence for online contracts:

• Insert a hyperlink to the terms and conditions right next to the tick box that says “Yes, I have read and agree to the Terms and Conditions” – this draws the consumer’s attention to the terms on which they are buying your goods and services. A consumer can’t then say they didn’t know what the terms were because they had an opportunity to read them but refused. Having the consumer actively tick the ‘I Accept’ box (rather than having it pre-filled) helps establish to a Court that the consumer (through their actions) objectively behaved in a way to accept the terms you were offering.
• “Scroll-box” method – many online sellers will require a consumer to “scroll” to the bottom of their terms before the “I Accept” button becomes “active” and capable of being clicked. At this point it is virtually impossible for the consumer to deny that reasonable attention was not drawn to the terms before the contract was formed. This “scroll box” method forces the consumer to be physically active to avoid reading the terms.

If a consumer chooses not to read the terms, even once you have drawn their attention to them, but have nonetheless ticked the ‘I Accept’ button, the consumer will still be bound by those terms: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 210 CLR 165 (this is another transport case but for another day).

To speak with someone to ensure your online terms are capable of being enforced, please get in touch with the Business & Commercial team on 02 6274 0999 to discuss further.